The outlook for the metals industry and market at the beginning of 2021 has been affected by various factors. Below, we present a combination of factors related to the metal market and its context, which will set the trend in the metal market at the beginning of this 2021.
Combination of factors related to the metal market, occurring between the end of 2020 and the beginning of 2021.
Before the extreme weather in the US and northern Mexico:
- Low inventories in the supply chain in the second half of 2020 due to production stoppages in Q2-20, caused by the Covid-19 pandemic.
- Q3 and Q4-20: Recovery of economic activity in the US faster than expected.
- Cleveland Cliffs undergoes a significant consolidation process in the North American steel industry, completing the acquisition of a portion of ArcelorMittal's assets (excluding AM/NS Calvert facilities) in the US in December 2020, after having acquired AK Steel in March of that same year.
- Announcement by the American producer Allegheny that it will suspend production of standard stainless steel sheet (Dec 3, 2020) and its subsequent clarification (Feb 3, 2021) “to be completed by the end of 2021”.
- The administration of President Joe Biden signals that the tariffs implemented under Section 232 by the previous administration will remain in effect for steel and aluminum. As an example, it reinstates the S232 tariffs for aluminum to the UAE (United Arab Emirates) which had been waived days before the end of the Trump administration's term.
- Two consecutive price increases (base) are announced by North American stainless steel producers, to be effective on January 1st and February 1st, 2021: in total US$155/ton for the base type 304 product
- Start of the mass vaccination process (with Pfizer and Moderna) against Covid-19 in the US creates optimism for a faster economic recovery than estimated.
- Price increases for stainless steel and aluminum in Asia, after the Chinese year.
- Steel and aluminum plants are full worldwide; no one wants to take on additional business.
- Delivery times are extended to 12-16 weeks due to excess demand.
- Producer mills have implemented volume limitations for their customers (allocation).
- Increases in raw material prices. (see Table 1) from the second half of 2020 triggers the demand for stainless steel and aluminum.
- Consequent increase in alloy surcharges. (see Table 2)
Table 1. Prices of raw materials and alloy elements (LME and Iron scrap Busheling No. 1)
Table 2. Alloy surcharges for some types of stainless steel
14. Possible explanations for the increase in the price of Nickel from mid-2020. Article in Reuters (July 23, 2020) reporting that Elon Musk asks Nickel producers to increase production to manufacture more batteries for electric cars. Experts point out that this additional demand is still nascent to justify the significant increase in the price of Nickel.
Nickel price chart from the website LME.
Elon Musk's message to Nickel producers to increase production for use in batteries for electric cars (Reuters July 23, 2020)
15. Lack of electronic components (chips) for the automotive and appliance industries. Due to the lockdown during the pandemic, sales of electronic devices that require "chips" to operate increased, increasing the demand for them and leaving the automotive industry uncovered and causing shutdowns prior to the extreme winter weather in the US.
16. The Chinese economy was the only one that grew, even with the pandemic that started on its territory. The demand for goods and services in that country continues derived from the domestic market.
February 2021: Extreme weather in the US, particularly in Texas and in the northern states of Mexico:
17. Extreme weather in practically all of the US and in northern Mexico in mid-February. Increased demand for natural gas in Texas and suspension of natural gas exports to Mexico.
18. Due to the weather, the generation and transport of scrap metal in the US has been interrupted. There is no availability. Possible production delays in steel mills and the automotive industry.
19. In Mexico, power plants that operate with natural gas are shut down. There are blackouts during peak hours in several northern states of the country. Mexico resorts to fuel oil to replace natural gas shortages.
20. This lack of natural gas and electricity results in shutdowns and production cuts in the Mexican industry (steel producers, food packers, lower level of production, in the automotive industry VW, Audi, Mazda and Toyota, announce line shutdowns).
21. Some invoke force majeure clauses for not being able to comply with the supplies agreed prior to the shutdowns due to weather.
